Japan Boosts the Trans-Pacific Partnership

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After eighteen rounds of negotiations for the Trans-Pacific Partnership (TPP) concluded on July 25, most technical aspects of the agreement have been completed, leaving difficult concessions to be hammered out by political leaders, says Mireya Solís, senior fellow at the Brookings Center for Northeast Asian Policy Studies. Japan's participation in the latest round could "triple the economic gains that the United States can expect from the TPP," Solís says, and "with Japan on board, the Asian identity of the TPP is more than solidified." The TPP currently comprises Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Japan, the United States, and Vietnam, which together make up roughly 40 percent of global gross domestic product and about a third of world trade.

Japanese prime minister Shinzo Abe speaks to media after a meeting with cabinet ministers in Tokyo. (Photo: Kyodo/Courtesy Reuters)

Most parties involved in the negotiation of the TPP want to reach a final agreement by the end of 2013. After the latest round in Malaysia, do you see this as a reasonable deadline?

The whole deal seems too ambitious. On market access, there is still a lot going on with Vietnam, for example, and it's not clear that a compromise has been reached on short supply. U.S. issues like sugar and dairy are still not done. To be frank, we are talking about a level of liberalization when it comes to Japan that is unprecedented, so even though Japan has done its homework and comes well prepared, we're talking about an exercise of great ambition; therefore it's going to take a while to hammer out all these issues. There is intersession work, there is a looming headline, and they'll come up with something so they don't lose the momentum, but in my mind it seems hard to anticipate that an agreement will be reached on every issue.

There is talk about trying to finalize most of the technical work by October, but I don't think that the final deal will be ready by then, because some of the most intractable divisive issues are still open and also because Japan's recent addition means it hasn't had had the opportunity to come to the table yet.

Will this leave the more contentious issues to be resolved by political rather than trade negotiators?

It's very standard in trade negotiations that there's only so much that the technical staff can do when you're talking about compromises. When the positions are far apart, you require major political commitment that must be taken to a higher level in the chain of decision-making. I don't know exactly what was the main motive or the main goal of the visit by the Vietnamese leader [to Washington in late July], but I am sure that some TPP topics came up, and I do know that the United States has been trying to develop a new rule of origin for short supply in order to try to reach an understanding with Vietnam. This is the way it traditionally works in trade negotiations.

Issues such as intellectual property haven't seen any progress for a year or so since the USTR [United States Trade Representative] released its statement on access to medicine. The approach they proposed was not very popular in many other developing countries, and that gap has not yet been bridged. So we're talking about very substantial issues that are still outstanding.

Do you agree with critics of the TPP and other so-called "high standard" or WTO-plus [World Trade Organization] agreements that argue that the focus should be solely on trade, rather than intellectual property, labor standards, and the environment, and that WTO-plus provisions hinder commerce?

One of the strong points of the TPP is that it has set for itself, from the get-go, a high level of ambition, and it said that everything must be on the table. It aims for an almost complete elimination of tariffs, which is not the case in most other trade agreements. When you compare the TPP with most other trade agreements, most of the other FTAs suffer because it's very easy to carve out exceptions for the sensitive sectors.

"Every country that is in the TPP is important, but the significance of Japan is quite special because of the sheer size of its economy. The TPP has acquired a stature that it had not had before."

The WTO-plus agenda has generated a tremendous amount of discussion, and it's not just about the TPP. Almost all of the FTAs in the post-NAFTA era have had some elements of WTO-plus rules. This quite simply reflects the fact that the negotiation process of the WTO has basically stopped in its tracks. So we have not had, since the Uruguay round, a new round of multilateral trade negotiations that update trade and investment rules, and we are coming now to almost twenty years without such updating. So almost by definition you have to come up with things that go beyond what's available in WTO simply because there hasn't been any movement and no real chance of ending the Doha round.

The TPP goes beyond many other trade agreements. If you assume that trade is all about tariffs, then clearly all these rules go beyond that. But the understanding is that if we really want to have a more seamless, efficient, and integrated set of countries, then you have to go into the non-tariff barriers, which are of course much harder to negotiate, and many people feel that they don't want to harmonize or to change their regulatory systems to have this greater integration.

So the question is whether you frame it as trade policy or as economic integration. In my mind, we're getting at economic integration. That's a better way of describing why these rules are there.

Other concerns with the TPP include a lack of transparency and the potential that bilateral trade agreements could weaken the dispute resolution mechanism of the WTO.

I don't think the TPP really deviates from what has been standard practice in the negotiation of trade agreements, and that is that during the negotiation period, trade officials are going to very jealously guard their positions because they are still very much in the back and forth. But none of these agreements are going to come into force until it gets a good public airing. When there is an agreement, it will all be published, and people who want to bother and read the hundreds of pages will be able to do so. There are going to be people at the end of the day who simply don't believe that we should be coordinating internationally on these issues that touch on domestic regulations, and it's a valid position, but it might be hard to win their acceptance.

As for dispute resolution at the WTO, I'm not concerned about that at all. We have a very strong track record that suggests that as these trade agreements continue to proliferate, the WTO is a choice that most countries make when they are trying to pursue a case. It's very clear that everybody sees that this is a very robust, well-tested, dispute resolution mechanism, and countries that have FTAs frequently pursue cases through the WTO route.

Chinese officials said a few months ago that they were examining the option of joining the TPP, but many conditions of the agreement would likely be rejected by Beijing, which is also pushing for a rival trade consortium in Asia. Do you consider the TPP as a U.S. effort to contain China?

What the TPP reflects in its origin is this concern that the United States was being marginalized from the world's most dynamic region. It shares with the pivot the understanding that Asia is a critical region and the United States should indeed invest resources in being embedded there and having a voice in shaping the regional architecture, but I don't see the TPP as some people have portrayed it--as the economic tool of a containment strategy--by any stretch. The fact that China and Japan are sitting across a negotiation table on trade after Japan joined the TPP shows that this was not seen in any way as a desire to isolate China but as a way to move forward.

Japan's participation in the TPP has transformed the outlook for the agreement now that it covers roughly 40 percent of global gross domestic product. How important is Japan's inclusion in the TPP?

"If we really want to have a more seamless, efficient, and integrated set of countries, then you have to go into the non-tariff barriers, which are of course much harder to negotiate."

The significance of Japan is quite special because of the sheer size of its economy. The TPP has acquired a stature that it had not had before. Economists have done econometric studies trying to estimate the gains from trade, and having Japan dramatically increases the economic benefits that other countries can expect from these trade negotiations. These studies show that it would triple the economic gains that the United States can expect from the TPP. This has to do with the fact that the Japanese economy is very large, and many countries didn't have a trade agreement with Japan, like the United States, or even those that had one, those agreements were not very ambitious. This is a unique opportunity to finally open the Japanese market.

So just on the front on how much economically countries can expect to benefit, Japan's membership is very important. It also encourages other countries to join. We haven't heard of discussions yet, but many people who watch this closely say South Korea may now be very seriously thinking about TPP. By putting together these large economies, the TPP becomes almost irresistible. And last but not least, critics of the TPP used to say that it was not really an Asia-Pacific platform because it didn't have a major Asian economy, but now with Japan on board, the Asian identity of the TPP is more than solidified. So on all those fronts, it's a very important development.

Does Japan's presence balance the power that the United States would have in these proceedings?

It balances in some areas. The United States tends to benefit because in the rules portion of the negotiations Japan and the United States may actually be working together in government procurement services, counterfeiting, and intellectual property, all these things Japan and the United States are on the same side of the issue.

Given that Japan is new to the talks, are there issues that Tokyo will introduce to the negotiations?

What has been interesting in watching Japan's participation in the first round was that we are beginning to see some of the things that Japan will ask of the United States. So far everything has been what the United States demands of Japan for Japan to be admitted, but now that Japan is in, we might begin to hear more about the barriers that Japan identifies in the U.S. market, and that's a new development. For example, according to press reports, Japanese trade negotiators are eyeing changes to the anti-dumping methodology favored by Americans. It's going to be interesting to watch how things develop and become more a give and take, as opposed to Japan convincing the United States that it is ready to be part of the TPP.

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